EB-5 financing can provide up to 35% of investment stack, but lining up investors may take years: panel
Fort Lauderdale has been a “tepid” market for EB-5 investors, while investment in Miami has been strong
While not “a magic wand,” financing from foreign nationals under the U.S. government’s EB-5 investment program can provide between 25 percent to 35 percent of a real estate project’s capital stack, said attorney Larry J. Behar. But obtaining approval for an EB-5 application is a long and complicated process for the potential investor, sometimes taking about five years, he noted.
Speaking Wednesday at an Urban Land Institute conference on capital sources for real estate held in Fort Lauderdale, Bejar, managing partner at the Behar Law Group in Fort Lauderdale, said that investors in the EB-5 program have brought in billions of dollars in capital in recent years. They have contributed $12 billion to the U.S. GDP and supported over 80,000 jobs, according to a Bejar Law Group document.
Fort Lauderdale has been a relatively “tepid” market for EB-5 investors, he said, while investment in Miami has been strong. About 85 percent of EB-5 investment in the U.S. comes from mainland China, and 15 percent from the rest of the world.
In South Florida, EB-5 investment in real estate comes from a variety of international sources, much of it from Latin America.
If granted approval under the EB-5 program, a foreigner and his/her family can obtain a green card (resident visa) for investing a minimum of $500,000 in a project that creates or preserves 10 full-time jobs for U.S. workers. (This is expected to rise to $800,000 later this year.) In addition to the minimum investment, there are about $80,000 in additional costs per investor, including various fees and legal expenses, Bejar said.
Under the program, designed by Congress to attract foreign investment and create jobs, several different investors can pool their capital in the same project. The top real estate sectors targeted by EB-5 money are construction, hotels, assisted living, schools and mixed-use projects.
EB-5 investors are very sophisticated and take time to research projects before investing, Bejar said, and are looking for sound management and ROI. “These investors are very skillful, and want to see skin in the game.”
The most successful U.S. partners understand their foreign partners and keep them informed on the project’s progress. Often, developers and other firms seeking Chinese funds via EB-5 open offices in China or work though partners who have a presence there.
A developer attending the conference, Rodrigo Azpurua, originally from Venezuela, talked about his successful use of the EB-5 program in completing his first project, the $70 million Professional Center at Riviera Point in Miramar. This was the first multi-tenant office building in Broward County fully financed by EB-5.
“Why EB-5? It was 2009, I had an idea, time and no money,” said Azpurua. He was able to raise 100 percent of development and construction funding for this project from investors in Venezuela, and has now completed two other projects using 80 percent and 45 percent EB-5 funding. He is currently developing two additional projects.
Despite the benefits of the EB-5 program, Bejar said that the government apparently is not planning to expand it. The U.S. allows in about 800,000 immigrants per year, he said, but only about 10,000 of that figure are allotted to the EB-5 program. Moreover, only about 3,500 of the 10,000 total are actual investors (the rest are family members) and the quota for EB-5 has been fully met for the last three years.
At least one participant was skeptical about EB-5 financing for some of his business. EB-5 is a “fascinating” alternative for bridge financing, “but it takes too long,” said Charles Foschini, senior managing director and Florida leader for Berkadia Commercial Mortgage, whose firm provides nationwide services in mortgage banking, investment sales and servicing. “I need to get hired and close.”